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Italy launches €10bn bond sale in bid to stem crisis

Italy launched a bond sale of 10 billion euros Friday to try to stem the nation's debt crisis after its borrowing costs surpassed the limit considered sustainable to prevent a blow-up, raising alarm bells around the world.

AFP - Italy launches a 10-billion-euro ($13.2-billion) bond sale on Friday with borrowing costs close to record highs as the EU's economics commissioner meets ministers and lawmakers in Rome to urge reforms.

The rate on 10-year sovereign bonds flew above the 7.0-percent threshold considered unsustainable for preventing a blow-up on Italy's 1.9 trillion euros ($2.6 billion) -- a prospect that has set off alarm bells around the world.

Top Eurocrat Olli Rehn held talks with members of Prime Minister Mario Monti's new government installed earlier this month after Silvio Berlusconi was ousted by a parliamentary revolt and a wave of panic on financial markets.

Italy has been forced to agreed to auditing of its books by the European Union and the International Monetary Fund and the European Commission has said more austerity measures may be needed to balance the budget by 2013.

Italy already passed two austerity packages earlier this year when fears over its giant debt and sluggish reforms began rattling the markets.

Technocrat Monti has promised rapid action to slash the debt and boost growth in the eurozone's third largest economy and has wide public support but has yet to launch concrete plans.

European and Asian stock markets mostly fell on Friday, a day after a meeting between the eurozone's three biggest economies highlighted their differences on finding a solution to the debt turmoil gripping Europe.

Ahead of the talks in Strasbourg, French President Nicolas Sarkozy had called for the European Central Bank to act as a lender of last resort for the eurozone and issue bonds, a move strongly rejected by Berlin.

But after their meeting, Monti, Sarkozy and German Chancellor Angela Merkel insisted there would be no wider role for the ECB.

Concerns about Europe's financial health were underscored on Wednesday when Germany could not find buyers for more than two billion euros' worth of 10-year bonds.

German bonds are the gold standard of eurozone debt but Berlin managed to draw bids of only 3.9 billion euros for a six-billion-euro auction, indicating that investors are now sceptical about even the safest European assets.

Rehn's visit to Rome on Friday comes at a time which, by his own reckoning, is crucial for the entire 17-member eurozone.

"Ahead lies either the slow disintegration of the euro area or a significant strengthening of the monetary union," Rehn told journalists during a visit to Helsinki on Thursday.

Rehn did not want to comment on Germany's disappointing bond auction.

But he warned: "The contagion effect that started in Greece and spread to different EU countries has recently affected countries close to the heart of the EU area and has now touched even the hardest core of the EU."

Rehn said what was needed were "courageous and determined decisions without delay in next Tuesday's meetings of the eurozone group in Brussels.

The debt crisis ate further into the European Union on Thursday when Moody's ratings agency announced it had downgraded Hungary's government bonds by a notch to Ba1 with a negative outlook.

Moody's said this was mainly over Hungary's "ability to meet its targets on fiscal consolidation and public sector debt reduction over the medium term, in view of higher funding costs and the low-growth environment."